27 April 2020

How will the EU integrate the transition to a circular economy in its sustainable finance policies?

As part of the Taxonomy Regulation, the EU has reflected on the identification of “environmentally sustainable” economic activities in order to channel public and private investments towards these activities.

The Taxonomy Regulation refers to 6 environmental objectives, including:

(1) climate change mitigation;
(2) resilience to climate change;
(3) sustainable use and protection of water and marine resources;
(4) transition to a circular economy;
(5) pollution prevention and control;
(6) protection and restoration of biodiversity and ecosystems.

To be environmentally sustainable, economic activities must substantially contribute to at least one of the environmental objectives, while not causing significant harm to the other five.

While the European Commission has significantly advanced in the characterisation of economic activities fulfilling the climate mitigation and adaptation goals (read more here), work is just starting on four other objectives.

Zooming in on investments supporting the circular economy

In the coming months, ECOS will review and contribute to the list of activities contributing to the transition to a circular economy. A report published by the European Commission last month provides preliminary elements for the eligibility criteria contained in the Taxonomy. Together with our members Zero Waste Europe and the European Environmental Bureau, we analysed the report and shared the following observations with its authors.

Overall, we found that the report was a welcome step towards the identification of activities substantially contributing to the transition to a circular economy. We welcome the inclusion of all the key principles of circular economy in the paper, in particular its extended waste hierarchy as well as the explicit exclusion of non-circular activities such as waste incineration.

However, we also flagged a few problems, and made proposals on how to overcome them:

  • We highlighted that refuse strategies – the most material efficient strategies of all – were overlooked in the report.
  • We regretted that variations in circularity performances were not better accounted for. Some categories consider reuse and recycling together, while reuse has a higher circularity potential than recycling.
  • We stressed the importance of relying on realistic end-of-life scenarios regarding the fate of products and activities included in the future taxonomy. For instance, the document refers to compostable materials as a generically positive investment option. However, these can only be considered if separate collection of organics is in place, and require specific infrastructure and attention during treatment.
  • Finally, we regretted that substances of concern were not given more importance throughout the document as it is an underlying issue for the circular economy.

You can find our detailed comments here.

Next steps for the Green Taxonomy

This report will feed into the work of the Platform on Sustainable Finance, expected to be established in the autumn. The platform will have to work quickly: the European Commission will adopt a second delegated act on the rest of the taxonomy by the end of 2021, which will apply as from end 2022.

We are very much looking forward to further contributing to this crucial work, aimed at transforming the EU financial sector.

ECOS is co-funded by the European Commission and EFTA

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